Rising Mortgage Rates May Not Hurt Housing


It was barely a few weeks ago that mortgage rates were sitting at record lows.

The idea of rates over 4 percent on the 30-year fixed seemed a distant memory.

And here they are now at 4.05 percent on the Bankrate.com overnight, thanks to the recent rise in Treasury yields.

The housing market, it seems, just can't catch a break. Or can it?

As the economy improves, the job market improves, and that is a key driver for housing. But on the flip side, as the economy improves, investors finally crawl out of the Treasury bunkers, driving yields higher, and mortgage rates generally follow the 10-year Treasury.

"We will definitely see a freeze up in refi’s immediately but the decision on a purchase still won’t be impacted until rates get at least to 4.5 percent I believe," says Peter Boockvar at Miller Tabak. "Assuming a $200k mortgage, going from 4 to 4.5 percent in mortgage rate adds about $60 per month to one’s payments, and while an extra $700 per year matters, I’m not sure if it’s a deal breaker."

While rates have moved a good quarter of a percent in the past few weeks, most analysts don't think they'll go much higher.

"Mortgage rates were too high anyway ,relative to the 10-year Treasury, so I don't think you will see a parallel shift," says FBR's Paul Miller, who spoke to several bankers today. They told him mortgage volume is good, which helps keep rates competitive. "But it does take time for this stuff to flow through the markets," he adds.

And then there could be one other phenomenon, as described by Freddie Mac's chief economist Frank Nothaft: "When rates tick up, you may see some potential home buyers who have been sitting on the sidelines, suddenly they may get up, as they are concerned that maybe this is the beginning of a trend, and they don't want to miss out on these 60-year low mortgage rates. In the near term it can encourage buyers."

Questions? Comments? RealtyCheck@cnbc.comAnd follow me on Twitter @Diana_Olick